Star Shipping A.S. v China National Foreign Trade Transportation Corporation (Star Texas)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE LLOYD,LORD JUSTICE MANN,LORD JUSTICE STEYN |
| Judgment Date | 20 May 1993 |
| Judgment citation (vLex) | [1993] EWCA Civ J0520-7 |
| Date | 20 May 1993 |
| Court | Court of Appeal (Civil Division) |
[1993] EWCA Civ J0520-7
(Mr. Justice Evans)
Before: Lord Justice Lloyd Lord Justice Mann Lord Justice Steyn
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
APPEAL FROM THE QUEEN'S BENCH DIVISION
COMMERCIAL COURT
MR. B. RIX Q.C. (Instructed by Messrs. Sinclair Roche & Temperley, London EC2) appeared on behalf of the Appellants
MR. J. GAISMAN (Instructed by Messrs. Herbert Smith, London EC2) appeared on behalf of the Respondents
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On 27th November 1989 the plaintiffs, Star Shipping A.S., as disponent owners, chartered the Star Texas to the defendants, China National Foreign Trade Transportation Corporation, for the period of one time chartered trip. The charter contained an arbitration clause in unusual, if not, as Mr. Rix submitted, unique terms. Clause 35 provides:
"Any dispute arising under the charter to be referred to arbitration in Beijing or London in defendant's option."
The vessel loaded in China. The cargo included a consignment of chemicals. While at Singapore a container of chemicals was found to be leaking. As a result the vessel was required to return to China. The plaintiffs say that save for two short periods the vessel remained on hire during the return voyage, and that the defendants are liable for unpaid hire and certain costs and expenses amounting to $304,952 in all. The defendants deny liability.
On 16th June 1992 the plaintiffs issued a writ for service out of the jurisdiction pursuant to leave granted by Evans J. (as he then was). The defendants applied by summons under Order 12 Rule 8 to set aside service on the ground that the case did not fall under any of the heads of Order 11 Rule 1. Without prejudice to that contention they applied for a stay under section 1 of the Arbitration Act 1975. Prima facie the defendants are entitled to a stay because the arbitration clause in the contract is clearly not a domestic arbitration agreement within section 1(4) of the Act.
Mr. Rix submits, however, that section 1 does not apply because the arbitration agreement is, he says, null and void, inoperative or incapable of being performed within section 1(1) of the Act. In support of that argument he advances two main submissions. These can be summarised as follows: (1) the parties must have intended that if the arbitration were to take place in Beijing it would take place in accordance with Chinese law, not only as the curial law of the arbitration, but also as the proper law governing the contract, including the arbitration agreement. If, on the other hand, the arbitration were to take place in London, then English law should govern. The parties cannot have intended that an arbitration should take place in London with the contract being governed by Chinese law or vice versa.
Since under Clause 35 the choice of the venue for the arbitration was to be at the defendant's option this necessarily imported into the contract what has come to be known as a floating proper law. But a floating proper law is a concept which English law will not countenance (see The Arma [1981] 1 W.L.R. 207 per Megaw L.J.at page 215 and The "Iran Vojdan" [1984] 2 Lloyd's Rep. 380 per Bingham J. at page 385). There are cases such as the Frank Pais [1986] 529 where the objectional part of a choice of jurisdiction clause can be severed leaving the rest of the clause unaffected. But in the present case that is not possible. The express agreement in Clause 35 as to the place of arbitration, and the implied choice of a floating proper law, are so closely related to each other that if the latter must be disregarded by the English court; applying the lex fori, so must the former. This was the conclusion reached by Bingham J. in The "Iran Vojdan" at page 385, column two. On that ground Mr. Rix submits that Clause 35 as a whole is null and void.
(2) Alternatively the clause is void for uncertainty. The clause provides for the arbitration to be held at Beijing or London in the defendant's option. But who is the defendant? It cannot mean the defendant in legal proceedings since that would presuppose a breach of Clause 35, which requires disputes to be referred to arbitration. It cannot mean the respondent in arbitration proceedings since this would mean that every unsettled dispute under the charter-party would give rise to an abortive arbitration. The claimant would no sooner claim arbitration in his own jurisdiction when the respondent would exercise his option under Clause 35. The judge characterised this consequence as absurd; and all the more so where, as so frequently happens, there are claims and cross-claims under the same charter-party. Each party would presumably wait as long as possible before making his claim in the hope that the other party would make his claim first. This would hardly encourage the expeditious resolution of commercial disputes.
There is a third issue before us. Assuming that Clause 35 is valid and effective, Mr. Rix submits that it is the plaintiffs who are the defendants for the purpose of Clause 35, and therefore the option rests with them. Each of these three issues, as well as others, were decided in the defendants' favour by the judge. The plaintiffs now appeal to this court. I take each of the issues in turn.
Floating proper law
As to the first issue, Mr. Rix drew our attention to certain passages in the speeches in the House of Lords in Compagnie D'Armement S.A. v. Compagnie Tunisienne de Navigation S.A. [1971] A.C. 572. Although the situs of the arbitration is not conclusive as to the proper law of the contract, as the decision in that case shows, nevertheless it is an important factor "and in many cases may be the decisive factor": see per Lord Reid at page 584. At page 590 Lord Morris said:
"The circumstances that parties agree that any differences are to be settled by arbitration in a certain country may and very likely will lead to an inference that they intend the law of that country to apply. But it is not a necessary inference or an inevitable one though it will often be the reasonable and sensible one."
At page 596 Lord Wilberforce described it as a "weighty consideration". Lord Diplock said at 604:
"The fact that … [the parties] have expressly chosen to submit their disputes under the contract to a particular arbitral forum of itself gives rise to a strong inference that they intended that their mutual rights and obligations under the contract should be determined by reference to the domestic law of the country in which the arbitration takes place, since this is the law with which arbitrators sitting there may be supposed to be most familiar."
Then a little later at 605 he said:
"Nevertheless, strong though the implication may be, it can be negatived by the other terms of the contract when the contract, as it must be, is construed as a whole in the light of the surrounding circumstances. It is clearly negatived by an express term prescribing some other law
than the curial law as the proper law, and it may also be negatived by an overwhelming implication from the other terms all pointing to one single other system of law as the proper law of the contract as distinct from the curial."
Basing himself on those observations Mr. Rix says that there is here at least a strong inference that the parties intended the proper law to be either Chinese law or English law, according to where the arbitration takes place. Indeed he argues that the inference in the present case is stronger than it was in the Compagnie Tunisienne case, for in that case there was an express choice of law clause, clause 13, which provided that the contract be governed by the law of the carrying vessel's flag; whereas here there is no express choice of law clause. Nor is there here, as there was in the Compagnie Tunisienne case, "an overwhelming implication from the other terms of the contract that the parties intended one single system of law to apply, whether English, Chinese or some other law."
It is, he says, unfortunate for the parties that the floating proper law, which they clearly intended to govern the contract is something which English law as the lex fori does not permit; a consequence of which no doubt the parties were wholly unaware. But this is a case where, in Mr. Gaisman's pithy phrase, "their implied choice of law abrogates their express choice of arbitration."
As for the judgment below, Mr. Rix criticizes the judge's approach. He decided, first, that English law was the proper law of the contract, as being the system of law with which the contract has the closest or most real connection. Only then did he turn to Clause 35. This was, says Mr. Rix, the wrong way around. The proper approach was to seek out the parties' intention as to the proper law, whether express or inferred. Only if no such intention could be ascertained is one driven to choose the system of law with which the contract has its closest connection. Of course, once the judge had decided that English law was the proper law of the contract, it followed almost inevitably that Clause 35 would be upheld. But the judge started at the wrong end. The point can be illustrated by a quotation from the judge's judgment at page 16 of the transcript:
"In my judgment the plaintiffs' analysis is too rigorous and in fact is not the result of the correct application of the principles which are involved. The proper law of the charter-party in my judgment for the reasons already given is English law and that conclusion, it seems to me, could...
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